Part II - The Devastating Impact of ERISA Loopholes on Accidental Death Insurance Claims

This is Part II of a two-installment blog on the harm posed to beneficiaries of life insurance policies because of ERISA loopholes. Insurance companies feel immune from adverse consequences under ERISA when delaying death benefits indefinitely even without a plausible basis for denying the claim. If you are being denied a life insurance benefit provided under an employer provided plan, you should seek legal advice. We also invite you to review Part I of this blog.

Meritless Denials of Death Benefits Are Common

The tactic of leveraging the amount that would be paid for an accidental death by delaying payment of claims is a fairly widespread practice. We have provided a few examples in addition to the more extensive case discussed in Part I of this blog post:

Benefits Denied for DUI When Insured Not Driving: A medical sales representative for Bayer AG died when he fell down the stairs of his home after drinking three glasses of wine. Prudential denied the claim and justified its denial by asserting that the insured was drunk by state DUI standards. The decedent’s wife sued, but the judge initially ruled for the insurance company finding the non-coverage decision was not “arbitrary or capricious”. The appeals court reversed indicating that the legal definition of intoxication was intended to apply to operating a motor vehicle not performing simple household chores.

Denial for Medical Malpractice: The insured elected to undergo voluntary surgery for scoliosis, which involves curvature of the spine. The anesthesiologist incorrectly inserted a catheter into the insured’s chest causing massive bleeding. The insured passed away two days after the procedure. AIG denied the husband’s claim for accidental death benefits under an ERISA life insurance policy because the policy did not cover disease or sickness. The surviving spouse was facing $16,000 in funeral expenses that she planned to use the insurance benefits to pay these expenses. While the judge granted summary judgment to the surviving spouse who brought the lawsuit, the case demonstrates that insurance companies feel like they have nothing to lose by challenging claims brought under ERISA policies.

Investigation of Claim Limited to Internet Research: The insured died when he lost control of his vehicle and drove into a tree. The coroner submitted a letter to the insurer indicating that the insured died from traumatic injuries suffered in a car accident. The coroner specifically indicated that the death was accidental. MetLife refused to pay the $438,000 death benefit under the policy. The insurer based its decision on a statement in the police report by a witness indicating that the insured “may have possibly” had a seizure. At trial, MetLife failed to provide medical evidence or any indication of the type of seizure suffered by the insured. The judge noted that the insurer did nothing more than consult the Internet. The insurer did not interview witnesses, the coroner, paramedics or police. The insurer did not even review the insured’s medical records. The judge dismissed the case, but this case again demonstrates the willingness of insurance companies to deny claims without a scintilla of evidence in ERISA cases.

Delays in Paying Death Benefits Yields Big Profits for Insurers

While the insurance industry is quick to note that 99 percent of life insurance policies payout the death benefit, this statistic ignores the extent to which such payments are delayed based on spurious reasons. Federal judges across the country have concluded that some insurers delay benefits by fabricating excuses, twisting facts and ignoring autopsy results. While the stories in this two-part blog may seem egregious, they are all too common.

The insurance industry significantly increases its profits by successfully delaying claims. During a recent one-year period, insurers in the United States were disputing a total of $1.3 billion in claims according to the American Council of Life Insurers. Because no interest or penalties are paid to the insured for delayed payment of benefits, the continued investment of these funds provides an enormous windfall to insurance companies.

Because federal law preempts state law with respect to ERISA plans, there is nothing state regulatory agencies can do to protect consumers faced with this strategy of delaying death benefits. When policyholders seek help from their state insurance department, they are turned away. Most state insurance departments do not even track ERISA complaints because state intervention is barred by federal preemption.

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